The ongoing reorganisation of Mizuho Securities, the investment banking arm of Japan's Mizuho Financial Group, has led to a substantial scaling back of the firm's electronic trading business, according to sources.
Within the last two months, Mizuho has closed its prime services division in Singapore and has also radically reduced headcount at its Japan-based electronic trading team, clearing out 14 of 16 ex-Lehman Brothers' employees that were hired shortly after the US investment bank's collapse in September 2008. Anthony Brooker, who was formerly head of electronic trading sales, pan-Asia for Lehman Brothers, was appointed to run Mizuho Securities' electronic trading team in October 2008. Brooker has since been replaced by Spyridon Mentzas, who is also deputy head of the equity group at Mizuho Securities, although this is not believed to be part of the reorganisation of the firm.
The prime services team in Singapore offered a high-frequency trading platform to clients that required low-latency access to markets in Japan.
At the end of last year, Mizuho Securities unveiled three new analytics tools designed specifically for Asian markets for pre-, post-trade, and real time transaction costs analysis. In March 2010, Mizuho Securities teamed up with US asset manager Tudor Investments to develop a high-speed trading platform for trading Japanese stocks.
“Mizuho came under pressure from Japan-based shareholders to increase profits and have more of a focus on domestic business in Japan,” said one source. “The electronic trading unit was simply collateral damage. Now that fragmentation and high-frequency trading are growing in Japan, demand for electronic execution capabilities are picking up pace, so it doesn't appear to be very good timing.”
Liquidity fragmentation in Japan has accelerated since the launch of Chi-X Japan, one of a number of proprietary trading system to challenge the incumbent Tokyo Stock Exchange (TSE). According to figures from Thomson Reuters, the TSE accounted for 92.3% of Nikkei 225 stocks in May 2011, down from 94.9% at the start of 2011. Since its launch in July 2010, Chi-X Japan, owned by market operator Chi-X Global, has acquired 1.47% market share to become the largest alternative trading venue in Japan. The TSE's arrowhead trading platform, introduced at the start of 2010, has also increased the prevalence of low-latency electronic trading practices such as high-frequency trading and co-location.
A spokesperson from Mizuho did not comment specifically on the number of ex-Lehman Brothers' staff that had left the firm, but said “the decision to restructure the electronic trading team was made in relation to cost, performance, expectations, overall budget etc”. The spokesperson added that Mizuho considered the total number of its electronic trading team to be in line with its competitors and that it does not intend to increase the team significantly in the near future. “We will continue to use available resources internally to drive forward a combined effort to promote our electronic trading offerings,” added the spokesperson.
As part of a Transformation Programme launched in May 2010, Mizuho Securities will become a wholly-owned subsidiary of Mizuho Corporate Bank, the group's large corporate and institutional banking arm, via a share exchange in September this year. Mizuho Securities merged with Shinko Securities in May 2009, giving Mizuho Financial Group a 59.51% stake in the resulting entity.
Mizuho has said that the integration would “enhance the retail business in Japan, rationalise and streamline management infrastructure, and provide securities functions in a unified manner”.
The Transformation Programme was accelerated following a computer failure that delayed retail transactions worth US$10 billion conducted by Mizuho Bank, which is responsible for Mizuho Financial Group's retail and small business services, in the wake of the massive earthquake that hit Japan on 11 March.
Following the technology problems, Mizuho said in May 2011 that it would integrate the corporate planning and management structure of Mizuho Bank, Mizuho Corporate Bank and Mizuho Trust Bank by 2013. The firm claims the initiative will help to improve the efficiency and decision-making processes of its group companies and restore customer confidence.
Mizuho Financial Group was established in April 2002 after the three-way merger of Dai-Ichi Kangyo Bank with the retail operations of Fuji Bank and the Industrial Bank of Japan.
Dai-Ichi Kangyo was renamed Mizuho Bank and inherited the group’s individual, small business and local/regional government services, while institutional banking services were consolidated into Fuji Bank, which was renamed Mizuho Corporate Bank. The trust banking subsidiaries of each of the merged firms combined to create Mizuho Trust Bank.